Employment contracts for senior-level executives are, for obvious reasons, more challenging to negotiate. The key provisions to negotiate include duties (although this is often non-continuous), base salary, incentivized pay (including short and long-term incentives), benefits, company-paid perquisites (like travel arrangements, use of company-owned property, etc.), for-cause terminations, severance and what happens (if anything) if there is a change-of-control for the business). You will need an experienced business and employment contract negotiator to provide legal help and guidance.
A word on non-compete agreements, actual and stealth
In the past, negotiations with respect to non-compete provisions were essential. However, the Federal Trade Commission has recently issued a Final Rule banning non-compete agreements nationwide, even for senior level executives. Current non-compete can still be enforced for executive employees, but no new non-competes are enforceable. However, senior executives should be cognizant of employer efforts to create “stealth” non-competes as part of severance and termination provisions.
Executive Compensation
Executive compensation is often listed in a “Terms Sheet” and may have begun as part of a letter of intent. It is important to understand the compensation, including base salary, bonuses, incentives, benefits like health insurance coverage, and other forms of compensation. It is important to consult tax professionals since some forms of compensation are taxable even if no cash is provided. This is particularly true for benefits and “perks” provided by the company, such as access to a company vehicle, aircraft, watercraft, vacation property, etc. These are valid and valuable forms of compensation, but just be aware of potential tax consequences. Permissible use and limitations should be clearly established.
Bonuses should also be negotiated carefully, particularly in terms of defining when a bonus vests and under what conditions. Again, consulting a tax professional is important for determining the tax consequences of vesting bonuses and deferred bonuses.
Another common form of short- and long-term compensation incentives is various forms of stock options (or ownership-unit options). These can be straightforward grants of ownership interests, can be deferred (required or elective), and can be phantom. There are many IRS rules and regulations governing stock option plans and when “taxable events” occur. These ownership-interest options/incentives must be carefully negotiated so that all parties have a clear understanding of what is being provided. As just one example, does the ownership interest being offered/provided include voting rights? Many companies will provide ownership-interests incentives involving non-voting shares. Is that what the senior-level executive wants?
For-cause termination provisions
Another area of a senior executive employment contract that must be carefully negotiated is the for-cause termination provisions. Even somewhat “common sense” termination provisions should be carefully reviewed. For example, it makes a certain common sense that a senior executive can be fired for “criminal activity.” But what does that mean? Is for-cause termination justified for an allegation of criminal activity, an accusation, an arrest, or a conviction? Is for-cause termination justified for traffic tickets, DUI, domestic violence, being arrested at a protest, etc.?
Even more difficult to negotiate are for-cause terminations based on what are often called “morals and behaviors” provisions. These provisions allow for-cause terminations for non-work-related statements or behavior that might “tarnish” the “reputation” of the business, including matters like romantic affairs, statements on social media, public support for various political and social causes, etc. These provisions must be carefully negotiated.
Contact the Executive Employment Contract Negotiator Attorneys at Revision Legal
For more information, contact the experienced Executive Employment Contract Negotiator Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.
